MYTH: Anything that gets you a tax deduction is a good idea

People are often conned into investing into activities or purchasing items (such as a new car) for the sake of getting a tax deduction, as they are of the understanding that they are ‘saving’ money. When you purchase something that is a tax deductible expense you do not receive a dollar for dollar benefit. If for example, you purchase some tax deductible stationary for $100, the most that you will save on your tax is $46.50 (you’re still out of pocket $53.50) and that’s assuming that you’re paying tax at the highest rate. If you’re in a lower tax bracket, you’ll save even less.

The main thing that needs to be considered is whether you actually need the item you are purchasing or will it fulfil a need or service a purpose, outside the tax deduction. If the answer is ‘NO’, then don’t purchase as it is costing you money.

You also need to be cautious when investing in products that provide an upfront tax deduction, as the investment itself must be solid, otherwise you will lose out in the long run.

The moral is to make sure that your tax saving isn’t actually costing you money.